There can be no clearer admission that Coach has exhausted the growth opportunities of its core brand than the $574 million purchase of luxury shoe-maker Stuart Weitzman. Yet for shareholders, who have lopped off half of the company's value since 2012, Coach's acceptance of its limitations offers a sign of hope. Coach is betting it can use its know-how to expand other, smaller brands like LVMH and Kering have.
For 74 years Coach focused exclusively on its own label, a strategy that worked until a couple of years ago. Despite an ambitious brand makeover, the company has failed to reverse sliding same-store sales and struggled to maintain its cachet with fickle fashionistas. As Coach has steadily lost market share to designers like Michael Kors and Kate Spade, its market value has plunged in half, to $10 billion today. And a rapid expansion into factory outlets has also tarnished the brand's cool factor.
Last year the company hired a new creative director and staged its first New York fashion week show in February. The revamp has thus far failed to bear fruit. In October, the company posted its sixth straight quarter of North American same-store sales declines.
Enter Stuart Weitzman. The cobbler, a red carpet regular and maker of People Magazine's "trendsetter" boot of the year, offers Coach a chance to jazz up its reputation. With 118 retail locations, Stuart Weitzman has roughly the same footprint Coach had a decade ago before nearly doubling its global presence and growing net sales from $1.3 billion in 2004 to $4.8 billion in fiscal year 2014.
Stuart Weitzman posted revenue of $300 million for the year ended Sept. 30 and has grown sales at a 10 percent compounded annual rate in the last five years. The ambition for Coach is to apply its experience in quadrupling its core brand over the past decade to Stuart Weitzman. That's the way luxury conglomerates LVMH and Kering have managed to maintain their sparkle. It's a new strategy for Coach, but the old one wasn't working.